The present invention generally relates to pricing of financial products and more particularly to a system, method and computer product for estimating the optimal price of a financial product.
Pricing policies for financial products such as consumer loans, insurance policies and credit cards are typically based on one or more business objectives such as maximizing profits, matching the pricing policies of competitors, achieving target sales figures, etc. In some other cases, pricing policies for financial products may be based on meeting a specific target on return on investment, maximizing revenue, or based on the average industry price for a particular financial product. In general, pricing policies for financial products may be based on several factors, some of which may be conflicting. For example, a pricing policy for a financial product such as a consumer loan is generally subject to several conflicting pressures on its price; the price in this context being the interest rate on the loan. At too low an interest rate, the loan product may not be commercially viable, given its cost or expected margins. At too high a rate, the demand for the loan product may be too low to justify the product. An estimate of an optimal price for a financial product that serves to meet both income and volume targets, is therefore desirable.
A challenge with determining the optimal price of a financial product is that the optimum price is not static and varies with features associated with the financial product, individual customers purchasing the financial product, and market conditions. Therefore, there is a need for an approach for dynamic pricing of variable price financial products that take into consideration current market conditions, is customized to individual customers purchasing the financial product and is receptive to changes in product features and business measure definitions.